U.S. Office Market Headed for Record Vacancy?

By Tony Wilbert, Wilbert News Strategies

AUSTIN, Texas (June 4, 2010) - The. U.S. office market will bottom out by year end, but not before the national vacancy rate eclipses a 25-year record. That's what Bob Bach, senior economist at Grubb & Ellis told the National Association of Real Estate Editors journalism conference today.

"The leasing markets continue to deteriorate, there's no question about it," Bach told NAREE members gathered at the Hilton Austin. "They'll bottom out by year end then gradually recover for three to four years before reaching equilibrium."

Bach said it's ironic office vacancy rates are increasing even as demand among investors for core class A office assets ramps up. 

The U.S. office market's vacancy rate jumped to 17.9 percent in the first quarter, a 50 basis point quarter-to-quarter increase. This steep increase surprised and chagrined Bach, who said the highest vacancy rate he's seen in 25 years of tracking it is 18 percent.

"We'll most certainly sail past that," Bach said. "It means there's probably still a lot of shadow space out there."

The economist's comments prompted moderater and NAREE Austin conference Chairman Ralph Bivins to make sure he heard Bach right that we're on the verge of breaking a record. Yes, it's true, Bach said.

And the country's worst office markets? Phoenix and Detroit, according to Bach.

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